Financial Conduct Authority says swaps bill for banks still uncertain

Martin Wheatley, managing director of Britain's Financial Services Authority (FSA) and CEO designate of the new Financial Conduct Authority, speaks at a Thomson Reuters Newsmaker event, in the Canary Wharf business district of east London October 16, 2012.

Reuters/Andrew Winning

LONDON The full bill Britain's banks must pay for mis-selling interest rate swaps won't be known for some time, with lenders still not handling claims fast enough, a top regulator said.

Martin Wheatley, chief executive of the Financial Conduct Authority (FCA), said the bulk of the 3 billion pounds ($4.8 billion) banks have set aside so far for compensation is for redress for the amounts actually paid for the products.

Banks have yet to set aside any large amounts for so-called consequential losses, Wheatley said.

Those claims would effectively set the clock back to the point before the products were sold and would require banks to compensate not just the direct cost of the mis-sold contracts but any losses that businesses have suffered as a result of entering the agreements.

That could include missed opportunities for firms to expand because they were tied into crippling monthly repayments on the swaps. The products were meant to protect companies against rising interest rates but, when rates fell, they had to pay large bills, typically running to tens of thousands of pounds.

Wheatley said it was unclear if the full bill for interest rate swaps would be of a similar size to the 17 billion pounds set aside so far for mis-selling loan insurance.

"There is more uncertainty about consequential loss ... it's more complex and will take longer. It's hard to predict whether it will be bigger or not," Wheatley told Reuters on the sidelines of a CFA Institute conference.

Britain's regulators, in particular the Prudential Regulation Authority, is taking a harder line on bank capital levels because of the seemingly unending bills for misconduct.

An open-ended bill for interest rate swaps will add to that uncertainty, as will investigations by the FCA and other watchdogs into possible manipulation of currency markets.

The FCA has begun publishing monthly statistics on interest rate swaps compensation and earlier this month Wheatley criticised lenders for being slow to pay compensation.

He said on Thursday that payouts were still too slow.

"The last month we published the third set of figures showing a significant pickup but there are lots of small businesses affected so we still want the banks to pick this up faster and move it on," Wheatley said.

HSBC, RBS and Lloyds have recently agreed to make initial payments to customers before possible claims for consequential losses are assessed. Barclays has said it will make decisions on a "case-by-case" basis in order to support customers in financial distress.